Chasing a Payment
Make it easy for customers to pay you
Often the reason for cash flow problems is clients not paying as quickly as you expected. You can improve your chances of being paid on time through good communication, accurate and prompt invoicing and a range of ways to pay:
- If you are selling products such as arts, crafts and clothes directly to the public then make it clear whether they can pay by card and what the refund policy is
- If you are selling products through other retailers then ensure you have written confirmation of when you will be paid, how you will be paid, what price the product will be sold for and how much commission the retailer will charge
- If you are selling services to clients then ensure you have a contract in place before work begins confirming what service you are providing, what the cost covers, what you are expecting from the client and when they will pay
- Consider the use of discounts for prompt payment or interest charges if payment is late. But ensure they are agreed upfront and in writing
If you invoice clients, it’s important to issue your invoice promptly and accurately in line with agreed terms and to make sure your invoice includes everything they need to pay you. If you have a bookkeeping or accounting system it will likely have an invoicing template you can tailor for your business. Alternatively, look for a template online that includes the following items:
- Your name, address and telephone number
- The date of the invoice and a reference number (to help with your records)
- The addressee’s name, address and the relevant contact person
- Details of the services provided and agreed fee (quote a letter, contract or purchase order number)
- Terms of payment such as a receipt of invoice
- Details of how to pay such as a cheque, BACS or Direct Debit
It can be worth adding something like ‘Please support small businesses by prompt payment’ at the bottom of your invoice. It’s an increasing practice and quite effective in encouraging quick settlement.
Chasing late payments
It can be helpful to send a reminder to your client the week before an invoice is due and ask them to get in touch if there are any issues. If a customer is late paying, pick up the phone and ask when you will receive payment. Remember, the most persistent suppliers are usually paid first.
What you should do when clients don’t pay up:
- Inform Your Client
First of all, the client needs to know that payment is due. Clearly display your credit terms on your invoice so that they are immediately aware of the credit terms of your business. It’s also useful to remind them how to pay you, so also include your bank details on your invoice.
- Personal Touch
If the debt period becomes longer than stated on your invoice, I find the personal touch works best. Make a friendly phone call to discuss the invoice with your client. The invoice may have got lost or something else may be stopping them making payment. Follow the conversation up with a letter summarising the conversation.
- Alternative Payment Arrangements
If the client is having problems making payment, agree an alternative payment plan such as making lump sum payments until the account is settled.
- Letter of Demand
If after a few weeks payment has still not been received, send a Letter of Demand, requesting payment within 14 days.
- Court Action
The last resort is court action. This is relatively straightforward and you don’t require a lawyer. You can download the paperwork from Scottish Courts and Tribunals which can then be submitted for a small fee to the Sheriff Court. This fee is recoverable if you are successful in your case. Often the client receiving the paperwork alone acts as a catalyst for payment.
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